by Ina King (Potgieter) June 18, 2020
Much has been written about the impact of the novel coronavirus on Africa's mining industry, both here and in the wider media. But we also need to think about how the world's commodity markets will ultimately regroup from the widespread disruption experienced so far this year, and how Africa – as the world’s biggest supplier of many key minerals – will respond.
What is the continent’s exit strategy from the grip of the virus, and how will these translate to important market trends over the next few years? Can we begin to estimate what the trickle-down effect of the virus will be on the industry?
A huge contributor to many countries’ GDPs in Africa, with a vast demand for labour, a rapid turnaround in mining activity following the lockdown is a priority. Yet as the mining value chains piece themselves back together, businesses need to be mindful of the shifting requirements of this multitrillion-dollar African industry.
Some important new trends are already taking shape.
With production impacted in some way at most mines across the world, most mining companies are bracing for significant shortfalls, revising guidance across their portfolios. In South Africa, Stats SA reported a plunge of annual mining production of 47% in April, the month most severely impacted by Covid-19. The Minerals Council of South Africa estimates an overall shortfall of 15% from initial projections.
Disruption to production was most severe in iron ore, which fell by 68.7%, with PGMs (62%), gold (59.6%) and manganese (57%) following suite.
In addition, economic slow down and lock down in China temporarily reduced manufacturing demand for raw materials, although the impact seems not to have been as significant as originally estimated. The key question is how quickly China’s – and the world’s – economy recovers, and how mining companies navigate this uncertain, unprecedented industrial landscape.
Information on Africa Mining IQ provides an early glimpse of the short- and medium-term mining landscape and the changing investment environment in Africa (Figure 1).
Figure 1 compares the June 2019 and June 2020 data on the number of mining projects in Africa, according to their phase of development. While mid to later mining phases remain largely within guidance – the most noteworthy development being a number of Active projects having moved into Operation – there has been a significant fall in newer project development, with 25% fewer Grassroots projects currently than in 2019.
This suggests that the primary current focus for most mining companies is the consolidation of existing operations. For junior miners, however, it’s an environment where companies with higher liquidity may use their corporate agility to maintain, or perhaps even slightly increase, earlier phase activities.
There will be casualties too, of course, and we may see further consolidation in the mining sector through mergers and acquisitions and fresh-faced joint ventures.
Encouragingly though, we have also noticed an increase in Dormant projects being revived to development again since the start of 2020.
Speculating on the performance of commodities at the start of 2020, analysts predicted a strong year for gold. On the back of a strong 2019, and with ongoing geopolitical and trade tensions, compounded by rising U.S inflation and poor performance across the S&P 500 index, gold had a bullish outlook. It was predicted its value as a safe-haven commodity would once again see it prosper in otherwise difficult markets.
To date, this has proven true, with the yellow metal the strongest performer amongst precious metals so far, having increased in value by around 20% (spot price of $1 725.31/oz. at time of writing). Gold not only finished in a stronger position midway through the year; it demonstrated a far greater resilience to the commodity spot crash caused by panic and uncertainty related to an almost worldwide economic lockdown from the middle of March, which decimated most other commodities.
Growing investment in the commodity – through bullion, gold stock and ETFs – has not translated yet to any drastic improvement to South Africa’s otherwise generally diminishing gold fortunes. Faced with a number of labour-related challenges, as well as ever-more difficult to access gold reserves, investors see other countries, especially in West and Central Africa, such as Ghana (now the continent’s #1 gold producer), Burkina Faso, Mali and the DRC as increasingly attractive destinations.
Unlike gold, the PGMs platinum and palladium (as well as rhodium) demonstrated far less resilience to Covid-19. Platinum, already under sustained pressure due to decreasing demand from automotive manufacturers (where it is used in diesel engine catalytic converters), and a long way off its historic high of $1 992.50/oz., lost almost 35% of its YTD-high, trading under $595/oz. on 19 March. Palladium, on top of the world having registered its own historic high of $2 862.30 on 27 February 2020 with demand driven largely by more stringent emissions requirements of petrol engines, had lost almost 50% of its value some 2 weeks later, trading at $1 609.10 on 16 March 2020. It has since recovered and sits roughly at where it began the year.
Silver also experienced considerable volatility in March and April 2020, although magnified by its far lower intrinsic value. It currently trades at $17.89/oz., where it began the year.
With a clearer, detailed picture of the mining value chain, we can make more informed projections about business requirements for the broader mine supply chain, as we navigate our exit strategy from Covid-19.
While we resume our march back to full production, Africa Mining IQ will continue to provide you with all the insights we uncover as the world’s largest database for African mines.
AMIQ tracks close to 2 000 mining projects across Africa. If you want to invest in mining, if you want to invest in Africa, if you provide product or services to mines in Africa, you need AMIQ intel. Subscribers to AMIQ’s mining intelligence database can identify where investor confidence is flourishing.
Africa Mining IQ has created various analysis reports to provide you with an overview of mining projects in Africa by region, mineral type, and plant type. You can use these reports to analyse growth potential in developing commodity markets and better strategically plan your business development efforts. Africa Mining IQ provides a complete project report for each of the over 1 900 African projects we track, including everything from historical and up to the minute commentaries to contact details for suppliers, engineers and mine owners.
AMIQ has 170 company subscriptions, 20% of which are international. It is becoming easier to do business across the globe. AMIQ is for anyone who supplies a product or provides a service to mines. With key contact details, and being in the know in the early stages of project development, you can build meaningful relationships with the right people and position yourself early for a successful bid for mining projects in Africa. Keep a close eye on developing projects aligned to your business and identify projects, with weekly or monthly alerts. Don't delay, subscribe to AMIQ today and reap the rewards of comprehensive African mining project intelligence.
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